Posts Tagged ‘bankruptcy’

Should you just throw up your hands at the probability of hyperinflation & depression?

Copyright 2010 by John T. Reed All rights reserved

‘If that happens, we’re all finished anyway so why do anything about it?’

That is a common response I get to my new book How to Protect Your Life Savings from Hyperinflation and Depression and related articles I have written.

I guess that’s easier than taking steps to protect yourself and your family—at least until the ’flation hits the fan. When the ’flation hits the fan, nothing will be easy for those who did not protect themselves.

Denial

Throwing up your hands does not work, but it’s sure popular. (more…)

Should you just throw up your hands at the probability of hyperinflation & depression?

Copyright 2010 by John T. Reed All rights reserved

‘If that happens, we’re all finished anyway so why do anything about it?’

That is a common response I get to my new book How to Protect Your Life Savings from Hyperinflation and Depression and related articles I have written.

I guess that’s easier than taking steps to protect yourself and your family—at least until the ‘flation hits the fan. When the ‘flation hits the fan, nothing will be easy for those who did not protect themselves.

Denial

Throwing up your hands does not work, but it’s sure popular. (more…)

ObamaCare

Obamacare becomes law on 3/22/10

OK. I let this settle for a couple of days as I usually do. One of the problems with Internet news groups is too many people popping off instantly in reaction to another post. A little reflection is better.

Unconstitutional

I think the law is unconstitutional. That is not to predict the U.S. Supreme Court will agree with me. I have no idea about that.

It violates the Tenth Amendment:

The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

The public seems to think the federal government outranks the state governments and the people. No. The opposite is true.

The Dems claim they can pass Obamacare under the “Commerce Clause.” But that says nothing about individual Americans. It states, in Article I, Section 8 that Congress shall have power “To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.” Its purpose is to prevent states from charging import duties on stuff coming in from other states or countries. It’s a stretch to extend it to forcing citizens to buy a private product or service. But the Supreme Court is famous for stretching the commerce clause in the past.

Ironically, I think the federal government may have the right to establish a single-payer health insurance system, which is somewhat similar to social security, a mandatory pension plan for all workers in the U.S. I actually think social security is unconstitutional, but that question has already gone through the Supreme Court and they upheld it.

There are also provisions that seem to me to violate the Fourteenth Amendment “equal protection” clause. You have to treat everyone the same. NE, FL, and LA do not get a better deal than the other 47 states.

ObamaCare may be a tax on the states that is not permitted by the Constitution. The original Constitution allowed only a head tax. Income taxes were declared unconstitutional as a result. The Sixteenth Amendment allowed Congress to tax“ incomes.” But Southern states have paid lesser Medicaid benefits than Northern states. ObamaCare forces Southern states to pay more for medicaid. As such, it is neither a head tax nor an income tax.

‘The process’

There was much talk in the media about the Dems violating House and Senate rules. That did not happen. The law that was signed was passed by 60 Senators on Christmas eve. The House passed that bill according to their normal majority rule. Deeming was not used. I do not know what they are going to do to “fix” the Senate version to make it more like the House wants. Normally, they go to conference then the resulting compromise has to pass both houses which subjects it to the Senate 60-vote cloture rule.

I surmise they are going to use reconciliation to pass the compromise version to avoid the need for the 60 Senate votes they no longer have. That arguably violates the rules pertaining to reconciliation, but the Vice President can overrule the Senate Parliamentarian and he will. The Constitution says the House and Senate can pass their own rules. The Vice President’s power to overrule the parliamentarian is one of those rules. No unconstitutionality.

All that all of this means is the Dems are darned lucky Harry Reid met one of their arbitrary deadlines on Christmas eve.

Were the bribes to get those 60 votes sleazy? Absolutely. The whole Congress is sleazy. You get in there by winning a best- liar contest back in your district or state.The president is sleazy. He won the best-liar-in-the-country contest.

Hey, the Dems squeaked it through. If the Supreme Court does not overturn it, those who do not like it need to elect a new Congress and President to repeal it. It’s as simple as that. Read the Constitution.

‘Doing nothing was not an option’

Obama kept saying that the Republicans wanted to do nothing. He lied. The Republicans CAN do nothing because they are in the minority and do not control the White House.

Obama also said that health care as now operated in the U.S. is unsustainable.

That is correct. The costs are way too high compared to other countries and the rate of increase has been way too high.

Then Obama said the fact that current costs are unsustainable means we have to do “something.”

“Something?” What does that mean?

To Obama, it seems to mean “anything” as in “Anything is better than nothing.”

That is not correct. The action we need to take is to change the way medical care is purchased and paid for in ways that reduce the costs to more appropriate levels without causing new problems.

It is not clear what that would mean. I would expect we would need to study health care systems around the world and either copy the best one or a least use ideas from the best. I have read that Germany and Singapore have universal health care systems that work pretty well. Germany’s was started by Otto von Bismarck in the late 1800s and has survived two world wars, Weimar Republic hyperinflation, and more than a century. It works through private insurance companies. Basically, Germany helps its citizens buy private insurance. Germany and Singapore also have very successful economies. The rest of Europe is a mess being bankrupted by their versions of ObamaCare.

The premier of Newfoundland, Canada recently came to Florida for medical care rather than use his country’s universal system. I am told the affluent in Canada do that to avoid Soviet-style customer service and lowest-common-denominator, we’re-all-equal treatment of people who are used to going first class. Apparently, one of the unwritten ways Canada pays for its health care is to charge the rich for it, then drive them to pay again for better service in the U.S. like what’s done to those who send their kids to private schools in the U.S. (By the way, did you know Newfoundland used to be its own country. It could not pay its bills so the U.K. annexed it into Canada.That was called gunboat diplomacy. Apparently, they still cannot pay the bill for quality health care service.)

Was Obama’s version of “doing something” better than doing “nothing?

Are you kidding? The “problem” was high costs. What does ObamaCare do to lower costs? Absolutely nothing. Part of it spends billions on attacking waste, fraud, and abuse. They should have attacked waste fraud and abuse in 1965 when Medicare started. The anti-fraud billions raise costs. Whether the money will produce a a net benefit when you achieve savings and subtract the cost of the achieving them remains to be seen. Actually, I do not need to wait. There is not a snowball’s chance in La Jolla that waste, fraud, and abuse will be eliminated or even reduced. It is endemic to all government activity. Indeed, I am certain that the bureaucracy created to stop waste, fraud, and abuse will itself have the usual amount of waste, fraud, and abuse, thereby making the waste, fraud, and abuse worse.

ObamaCare is to fixing the high-cost problem of U.S. health care what shooting gasoline from a fire hose is to putting out a fire.

Socialism?

Is ObamaCare socialism? Yeah, of course. So are Medicare, Social Security, and Medicaid. Socialism is not a pass-fail question. It is a matter of degree. Pure socialism is government spending is 100% of GDP. Pure capitalism is 0%. Our spending in 1903 was about 17% of GDP and is now about 45%.

Here is a Web site that says the U.S. spends 19.9% of GDP, 144th out of 160. This is 2006 data. Other major countries on that table come out like this:

Japan 103rd 30.9%
Switzerland 76th 37.8%
Germany 41st 48.8%
U.K. 37th 50%
France 7th 61.1%

Single payer

Obama denies it now, but in the past he said he was a single payer guy. That means total government takeover of health care. All doctors, pharmaceutical companies, hospitals, and medical equipment manufacturers are paid by a single payer: the federal government. That’s the Soviet, Cuban model.

Here is a YouTube of Obama saying this. I saw him confronted with it by a media interviewer. His response: He claimed he could not hear what he was saying on the video they played for him.

That’s lame and he knows darned well what he said. Transcripts of it are all over and Obama and his advisers have discussed it behind closed doors. “I can’t hear it” is the best they could come up with? “I changed my mind” might, I repeat, might be believable. “I can’t hear it,” is not believable.

In the video, he says, “we may not get there immediately.” ObamaCare 2010 is not getting there immediately. But make no mistake, every single hard- core proponent of ObamaCare regards it as merely the camel nose inside the tent. They are not stopping with ObamaCare. They will push for moving to single payer or closer to it as soon as they think they can get away with it. And they will not stop pushing for single payer until they get it. Shame on the American people who believe the Dems have abandoned their dreams of single payer. 2010 ObamaCare is to the left what Czechoslovakia was to Hitler. The British agreed to let Germany have Czechoslovakia to get an agreement that they would seek no more territory. It was called appeasement. The Peace in Our Time Munich Agreement was signed by the British and Germans on 89/30/38. Germany invaded Poland starting World War II in Europe on 9/1/39. Americans who oppose single payer but who are OK with 2010 ObamaCare are clones of British prime minister Neville Chamberlain who sold out the Czechs for a worthless agreement that Germany would seek no greater territory. The left will pursue single payer until they get it and they will use ObamaCare to get American addicted to government health care so they can later get single payer.

The next step will be leftists using ObamaCare rules and law to drive all health-insurance companies out of business. Then they will say, “See!? We told you those people were no good. We’ll take care of you now. And be sure to vote Democratic in the next election—if you know what’s good for you.”

Effects of government intervention

Socialism doesn’t work. Government intervention makes things worse. Here is what I expect will happen as a result of ObamaCare:

• The best and brightest Americans will stop going to medical school.
• Medical students interns and residents will abandon medical school and medical careers.
• Current American doctors will quit the profession or retire early.
• More hospitals and doctors will refuse to take Medicare patients. The Mayo Clinic refused to take them before ObamaCare.
• Your heath insurance plan, and doctor, whom Obama assured you that you would be able to keep, will shut down and no longer be an option.
• The addition of 32 million new insureds and the reduction in the number of doctors will result in a severe doctor shortage that will be partially taken care of by importing Third World doctors who cannot speak or understand English well enough to adequately understand your symptoms, adequately explain your situation and therapies to you, or establish any sort of cultural or personal rapport with you.
• The same will be true of nurses.
• The U.S., which is the last country to aggressively seek new medicines and medical devices, will stop doing that because of lack of profit incentive. The number of new patents for new medicine and equipment will flat line worldwide. Tenured University personnel will putter around continuing efforts to develop new therapies, but without the profit motive, they will do so only at glacial speed. Recently, the rest of the world has gotten away with not doing medical research cause they could count on us to do it for the whole world. When, we, too, allow a government takeover of all health care, neither we nor the rest of the world will be able to benefit from technological progress.
• All prescription medicine will become generic in about 17 years (patent term)
• Hospitals will deteriorate and age more than in the past. As in rent control, the building owners will have no incentive to rehab or replace them.
• Waiting lines will get unbelievably long. Waits for appointments will get longer.
• Many therapies and diagnostic tests will be rationed because the equipment or medicine is expensive.
• All medical personnel from doctors to nurses to orderlies to janitors to administrators will unionize and seek and get generous benefits like retirement when they are in their 40s, suspiciously high rates of disability, cost-of-living adjustments to pensions, high pensions.
• the best people and managers will leave health insurance companies to be replaced by gum-chewing, union, it’s-not-my-job, bureaucrat drones

Author of Is the Welfare State Justified?

On 3/28/10, I heard a brief interview with Professor Daniel Shapiro of WVU. He wrote the book Is the Welfare State Justified?

Basically he said that those who favor government health care and all that are even wrong when judged on their own priorities. Liberals say their priorities are right and those of the right wrong. Shapiro says, OK, let’s use your priorities. He then shows that the priorities of the liberals—like social justice, fairness, and egalitarianism—are better served by letting the market run health care. His evidence is to show how actual market and government health care systems around the world work. For example, in government-run health care systems, the poor end up at the back of long lines and waiting lists for health care. The rich pull strings, use connections, or spend money to get better health care and better service. Plus, the government-run system costs more so there is less health care for everyone, especially the poor, than in a market system.

Shapiro agrees with me that the proper health care delivery system is the 1970s and before approach. You pay out of your own pocket for routine and semi-routine and moderate cost care—like car insurance. And, as in car insurance, you have major medical insurance that only covers catastrophically high-cost care.

Essentially, that is what we will have, either because we are smart enough to recognize it, or because we act like idiots and bankrupt ourselves in which case we will be forced into the pay-your-own-way plus major medical system because we cannot get anyone to lend us the deficit spending necessary to offer Santa Claus level universal health care with no deductible.

Pre-existing conditions

Both Republicans and Democrats agree that pre-existing conditions have to be covered by health insurers. Good for them, but they’re nuts.

By definition, insurance cannot cover pre-existing conditions. Insurance covers risks. There is no risk in a pre-existing condition.

The answer to pre-existing conditions is pre-existing insurance. My sons were covered from birth. That ought to be the case with everyone.

What about people who for one reason or another did not do that or had gaps in coverage which caused them to be disqualified when they attempted to get new insurance?

1. Pay out of your own net worth for the needed health care. Your pre-existing condition is certainly not any one else’s fault.
2. Seek charity from relatives, friends, organized charities.
3. When you run out of money or private charity, go to Medicaid.

A bigger picture solution is to end government and employer involvement in health insurance. This was sort of done with pensions. It used to be that those who lost their job lost equity they had built up in company pensions. The pension was switched to the person, not the company, with 5401(k)s, IRAs, SEPs, and so on. Good law.

The same should be done with health insurance. You buy it from an insurance agent like car insurance or fire insurance, not through your employer. The stupidity of employers providing health care started during World War II as a way to get around another stupidity called wage and price controls. It was a way to give raises. Employers have better things to do than provide health care or insurance, like employ people. The requirement that they provide health insurance deters starting new businesses and expanding them. Everyone should buy their own health care and health insurance the way they buy food, clothing, housing, and so on. That would fix the high cost and rapid price increases too. Only bureaucrats tolerate high, rapidly rising costs. Consumers would shop around and refuse overly expensive treatments.

Letting people with pre-existing conditions buy health insurance that covers that condition is like letting you buy life insurance on dead people or letting people at the race track bet on races after they are over. It’s stupid on its face. People with pre-existing conditions don’t need insurance. They need to pay for their care themselves or get charity.

Essentially, people with pre-existing conditions have long been covered for health care by Medicaid. The real problem is that middle class and affluent people want someone else to pay for their misfortune. They do not want to have to burn through their net worth until they qualify for Medicaid. I understand the economics of their motivation. What I do not understand is why they do not see the economics and fairness in mine. Sorry about your pre-existing condition, but no you may not bankrupt me, my children, or my country to pay for it. You pay for it until you are bankrupt. Then become a ward of the state.

With ObamaCare, the law will now “cover” them, but only briefly before trying to do that bankrupts the insurance companies and the country.

End lifetime policy limits

Another “we can all agree” provision is prohibiting insurance companies from putting a lifetime cap on health care coverage.

Why don’t we repeal the law of gravity while we are at it? That would eliminate injuries from falls.

We cannot force insurance companies to end limits on the amount of are they will provide. They are not bottomless pits of money. All insurance policies have limits.

Of course, ObamaCare went ahead and outlawed lifetime limits anyway. Enjoy it while it lasts. It will bankrupt the companies then the country.

Bankruptcy of the U.S. government

We have been told for decades that Social Security alone will bankrupt the country. It will. The first of the 78 million Baby Boomers still have not yet started collecting. They have to be 67 to get full benefits that are not reduced by their other income. Social Security went into the red—outlays exceeded inflows— in 2008 for the first time in history. The first Baby Boomers turn 67 on January 1, 2013. You have to be 65 to get Medicare. The first Baby Boomers turn 65 on 1/1/11. The 12/9/09 Daily Paul—Congressman Ron Paul’s web site—says,

The 2009 Social Security and Medicare Trustees Reports show the combined unfunded liability of these two programs has reached nearly $107 trillion in today’s dollars! That is about seven times the size of the U.S. economy and 10 times the size of the outstanding national debt.

Actually, the current national debt is http://defeatthedebt.com/debt-clock/?gclid=CJTN99-U06ACFRlRagodeCcRsw.

An Internet article said his about Medicaid unfunded liabilities:

In the next 50 years, Medicaid, the program for the poor — broadly, sometimes very broadly defined — could become a bigger threat than Medicare to the nation’s prosperity.

Even Barack Obama says current U.S. fiscal behavior (spending, taxing, and borrowing) is “unsustainable.” He’s right. Everyone says that. They are all right.

But no one, I repeat, no one, is doing the slightest thing about it. Obama says ObamaCare will reduce the deficit by $118 billion in the next ten years according to the Congressional Budget Office. If you believe that, you are too dumb to vote. Please stay away from the polls. Second, even if it were true, it is a drop in the bucket. The problem is over $100 trillion. $118 billion is one tenth of one percent of the $100 trillion problem.

Basically, the bond market and/or foreign exchange market will go on strike with regard to the dollar at some point. It’s called a run on the dollar. Anyone who owns dollars or dollar-denominated assets like U.S. government or corporate bonds worldwide will frantically try to sell them. That will drive up interest rates dramatically. It may be that no one will buy dollars or dollar bonds at all. In that case, the Congress and the President will not be able to deficit spend. They will have to raise taxes or cut programs drastically to pay the government’s bills. In fact, they will simply not have the money to pay pensions, bond interest and principal, government employee salaries, government bills for ammunition, fuel, electricity, and so on.

That was going to happen without ObamaCare. ObamaCare greatly accelerates it.

So in the end, the issue is not how Obama Care will hurt health care. The issue is when will ObamaCare and all the prior entitlement programs stretching back to 1933 cause the world financial markets to say “No more.” I saw a Harvard economist get asked when that will happen on Charlie Rose or some similar show in 2009. He thought a moment and said,

Five years—not ten.

In other words, he expects the U.S. to go bankrupt in 2015, 2019 at the latest. It’s really not possible to tell. It depends on events worldwide.

ObamaCare, therefore, is not something that you will experience in a hospital or doctor’s office. It is something you will experience on Fox Business TV, Wall Street, at your bank, your 401(k), your IRA, and, after the bankrupt federal government figures out how to pay the judges and bailiffs, in your recently re-opened local bankruptcy court.

Can the “greatest country in the world” actually go bankrupt?

YES WE CAN.

What bankruptcy of the U.S. might look like

Since the subprime crisis hit, I have been reading books about the Great Depression, the subprime crisis, Long Term Capital Management’s failure, the 2008 crash, Bear Stearns, J.P. Morgan, bailouts, stimulus, earmarks, and all that. I have also sought out local speeches about those things in San Francisco at the Commonwealth Club and TV expert discussions on Charlie Rose and similar shows.

Singapore leader Lee Kuan Yew was on Charlie Rose the last week in October, 2009. Very impressive, seemingly extremely knowledgeable guy.

Bond and forex traders

Based on everything I’ve read and heard and seen, I think Yew’s prediction is the correct one. He said or seemed to say that the bankruptcy of America will start with bond and forex (foreign exchange or foreign currencies) traders making a run on the dollar. Bond traders and forex traders are like the canary in the mine. They watch the U.S. fiscal and monetary policy with microscopes and telescopes 24/7. They will be the first to herald the arrival of the financial apocalypse.

What will bring us to the tipping point? Either an accumulation of straws on the camels back in the form of one media story after another, one new law after another, one new entitlement after another

or

some major shocking event, like a downgrade of U.S. credit by some international authority; hyperinflation, something like that.

When will it happen? I’m not sure. Maybe tomorrow. Maybe next year. Maybe five years from now.

Can we escape this fate? In theory, yes. But as a practical matter, no. There is not the slightest indication that the Congress or the president will behave prudently. Obama is worse than his predecessors, but his predecessors going back to Roosevelt the second were all disasters to one degree or another.

Panic

Normally, the phrase “run on the” ends with the word “bank.” Yew spoke of a run on the dollar.

In both cases, it means the public wants their money out of there. In a run on the bank, they lose faith in the bank and want to get their money out before the bank fails and they lose money.

That used to happen in the U.S. before the FDIC was created on 1/1/1934. Since then, deposits are covered up to $250,000 per account per bank with many rules about how many accounts one can be covered for.

A run on the dollar

A run on the dollar would be caused by people in the U.S. and other countries losing faith in the U.S. government’s willingness to get their national debt and unfunded liabilities under control.

If the debt and unfunded liabilities continue to explode, informed people expect that the Federal Reserve will be forced to print huge amounts of money. That causes inflation and hyperinflation.

Yew said if the U.S. government does not convince the world bond and forex markets that the U.S. government debt and unfunded liabilities intends to control it’s fiscal policy, there will be a run on the dollar. He seemed to shudder or wince at the thought of a run on the dollar and said it would be very bad or words to that effect.

What that would mean

A run on the dollar would mean that all the people of the world including U.S. citizens would decide the dollar was going to inflate big time. That means the purchasing power of the dollar would fall significantly, maybe to zero, as it has in the past in

Angola 1991-1995
Argentina 1975-1991
Austria 1921-1922
Belarus 1994-2002
Bolivia 1984-1986
Bosnia-Herzegovina 1993
Brazil 1986-1994
Bulgaria 1996
Chile 1971-1973
China 1948-1949
Danzig 1923
Georgia 1994
Germany 1920-1923
Greece 1944
Hungary 1945-1946
Israel 1971-1986
Japan 1943-1951
Krajina 1993
Madagascar 2004-2005
Mozambique 1977-1992
Nicaragua 1987-1990
Peru 1988-1990
Philippines 1942-1945
Poland 1989-1991
Romania 2000-2004
Russia 1921-1922
Turkey 1990-2005
Ukraine 1993-1995
United States 1861-1865
1916-1920
1969-1982
Yugoslavia 1989-1994
Zaire 1989-1996

This is research I did for my book How to Protect Your Life Savings from Hyperinflation and Depression

As you can see, there were three bouts of inflation in the U.S.: during the Civil War (both sides); just before, during and after World War I; and in the 1970s after the Vietnam War. There was also severe inflation technically before the U.S. existed during our Revolutionary War (“not worth a Continental”). There was also on-again-off-again inflation (and federal price controls) during and after World War II.

So don’t say it can’t happen here. It already has and it can again.

When hyperinflation occurs, as with the Revolutionary War “Continental” and Confederate dollars and the German mark in the early 1920s, the currency in question simply ceases to exist. That is, it becomes worthless. Obviously, no one wants to still be holding that currency when that happens. They want to get out before it goes that far. Hyperinflation is a form of Ponzi Scheme. If a Ponzi Scheme “victim” manages to withdraws their money before it collapses, they typically make a lot of money. But if they are still there when the music stops, they lose everything.

That’s how hyperinflation works.

If and when the people of the world conclude there is a danger that the U.S. will inflate the dollar significantly, they will get rid of dollars.

Currency and bonds

You get rid of dollars by trading them for other currencies or goods and/or services. Dollars take the form of actual currency, bank accounts, certificates of deposits, U.S. bonds, and contracts payable in dollars.

You’ve heard of the deficit—deficit spending. But do you know what it means? It means the government is spending more than it takes in in tax revenues. So where do the get the extra money?

They sell U.S. bonds. Who buys them? U.S. citizens and organizations and foreign governments and organizations and individuals.

A run on the dollar would mean among other things that:

A. No one bids at the next U.S. bond auction
B. Owners of U.S. bonds sell the ones they already own so they can put the money in something other than dollar-denominated bonds or accounts

As a practical matter, what would actually happen is that the U.S. Federal Reserve bank would buy all the bonds offered at the auction. This is what goes by the phrase “printing money.” When the Federal Reserve buys U.S. bonds, they are doing one of the things that is technically the equivalent of printing money. The Federal Reserve buying the bonds puts that much into the bank accounts of the federal government. That increases the money supply by that much. That causes inflation.

Indeed, there is a vicious spiral. Fear of dollar inflation causes people to refuse to buy U.S. bonds that they fear will lose purchasing power because of inflation. The government reacts by printing even more money which causes inflation to get even worse which cause more people to try to sell the U.S. bonds they already own which causes the Federal Reserve to buy those bonds because no one else will and so on.

To keep on deficit spending, the U.S. would either have to “print” money (Federal Reserve buying U.S. bonds) or the U.S. would have to pay higher interest rates on the new bonds to attract enough bond buyers. That would be awful because it would mean they would have to raise taxes or cut benefits even more to pay the new higher interest rates on U.S. bonds. Also, higher interest rates on U.S. bonds, would mean even higher interest rates on all other types of bonds or loans including mortgages, car loans, education loans, business loans, and so on. That, in turn, would drive down the values of all capital assets like cars, houses, factories, nd so on.

U.S. imports

We got lots of stuff cheap. Probably most of the clothes you are now wearing were made outside the U.S. Ditto your TV, car, and so on.

What happens if people in other countries no longer trust the dollar? They will tell you to pay for your flat screen TV or underwear or imported car in yen or euros or yuan or whatever currency they trust. So you have to exchange your dollars for other currencies to get the money to buy your imports. But the forex dealers aren’t much more interested in your dollars than anyone else. So you will have to pay a lot more dollars than in the past to buy, say, yen.

My youngest son and I went to London, Paris, and Rome in May, 2008. The dollar amount for purchases that were cheap in the U.S. were brutal. What Yew fears would be a lot worse.

U.S. exports

In theory, U.S. exports would be greatly helped by the value of the dollar falling in relation to other currencies. It would make our stuff cheaper overseas. But as a practical matter, those countries are used to exporting to the U.S. not importing from it. Losing those exports would lose many jobs and cause very unhappy people in those countries. Their politicians might react the way they often do when we pass tariffs that hurt their exports to us. That is, they might slap retaliatory tariffs on our exports to them to placate their unemployed workers and force their citizens to buy from manufacturers within their own countries.

Inflation not enough

The U.S. government has five choices for fixing the excess debt:

• monetize the debt (use inflation to make it easier to collect more taxes and easier to make payments on debt not indexed to inflation)
• cut spending, mainly social security, Medicare, and Medicaid
• raise taxes (not really much of a possibility because the amounts needed are about three times current total tax revenues)
• economic growth that increases tax revenues
• default on the debt

Economic growth, is of course, the most pleasant choice, although the rate of growth needed would have to be almost unprecedented and for an unprecedented period. But the bigger problem is Democrats are now in charge and they hate all pro-growth measures, namely:

• reduction of top tax rates
• elimination of dubious environmental restrictions
• free trade (elimination of tariffs like the “Buy American” part of the Stimulus or the tariffs on Chinese Tires)
• increase in the percentage of the economy that is controlled by entrepreneurs
• strongest possible rewards for innovation
• drill for oil and dig for other minerals in U.S.
• end detrimental restrictions on business like zoning, rent control, permits
• tort reform

and so on. See my longer article on a miracle growth program that would cost the American taxpayers almost nothing.

Default is arguably the best alternative

Crazy as it sounds, default may be the best choice. It eliminates the need to raise taxes. It does not monetize all debts. So private debts would still be payable and the lenders not cheated by inflation. Default would hurt all owners of U.S. bonds, but generally, they can afford it better than the wider group that would be hurt by inflation. Many people own U.S. bonds without knowing it via pensions and mutual funds.

What would be the consequences of default?

Probably all the other countries would promptly do the same. Why be a chump? Why not retaliate against the country(ies) that did that to them?

What about future deficit spending? There would not be any.

Why not? Because governments have to sell bonds to engage in deficit spending and no one would buy government bonds after a default.

Essentially, the previously no-limit credit cards of the President and Congress would be terminated and cut up into little pieces. They would have to pay all cash—that is, tax revenues—for all government spending.

Our children and grandchildren would not be stuck with an impossible debt. Neither would they live in a country with good credit.

Government spending, mainly Medicare, Medicaid, and Social Security would have to be cut drastically—probably means tested, that is, affluent and middle class people get no money from the government. What about the fact that you paid into it?

Tough.

They would also have to cut things like government employees, government employee pensions, government employee health care benefits, earmarks, boondoggles, government buildings, etc..

The budget would look like it did in, say, 1927—percentage and deficit-wise, not counting the effects of 82 years of inflation since then. We had a budget surplus that year. Our government spending was a bit less than total tax revenues.

Would the government not being able to deficit spend be the end of the world? Actually, that’s more or less the way all 50 states have always had to operate. They could issue bonds, but not too many. They recently did issue too many such bonds in CA and other states. The bond rating agencies downgraded them and that was, roughly speaking, the end of their deficit spending.

Let me repeat one part of this. If we defaulted on the national debt, our Congress and President would be henceforth prohibited from spending more than they collect in tax revenues.

As Martha Stewart likes to say,

That would be a good thing.

Actually, compared to what’s been going on since 1930 (Hoover Administration), it would be a fantastic, unbelievable improvement.

Most of all, it would keep the barefaced-lie promise that we are not going to “kick the can down the road” or “put a bunch of debt on the backs of our children and grandchildren.” In fact, “kicking the can down the road” and mortgaging the futures of our children and grandchildren is exactly what we have been doing since 1930. The authors of The Coming Generational Storm rightly call it fiscal child abuse.

Defaulting is not the right thing to do. The right thing to do is to broaden the tax base, adopt pro-growth policies, and drastically cut entitlements. However, there is absolutely no hope that Congress or the president will do the right thing. Nowadays, Represenative democracy attracts to Congress and the White House a collection of sociopaths. Normal people like you and I would never run for Congress or president in a million years. The people who will in the 21st century are psychiatrically defective. We need to default to stop those sickos from making things even worse.

Defaulting would force the voters and politicians responsible for that misbehavior, us and our parents who are still alive, to pay for it right now.

Rough justice.

Disaster only way to get ‘change we can believe in’

On page 246 of their 2005 book The Coming Generatonal Storm, authors Kotlikoff and Burns put it this way:

Truth be told, our politicians care more about their next fix—the next election—than they do about the next generation. And they’re not going to clean up their act unless and until they are confronted with a major crisis. Hence, as crazy as it sounds, our only real hope is that the economy will go critical sooner rather than later.

I would add, if that’s where we’re going, and there seems no doubt of that, let’s get it over with—save the nine stitches.

The best way to push the economy off the cliff ASAP is probably Obama’s current quartet of health care, cap and trade, protectionism, and increasing taxes on “the rich.” They are likely to be the anvil on the camel’s back.

Common sense on health insurance

The debate on the various Democrat health insurance bills has lost all connection with reality and common sense. It has long since become about whether the Democrats win or lose. That is not the issue.

1. There is no crisis

Politicians are always saying we are in a crisis because when the public believes it, they let the politicians do what the politicians always want to do: expand their power and please their base.

The vast majority of people have health insurance they are generally happy with. Health insurance is extremely complex. No one can please all the people all the time in such an emotional, multifaceted area.

The ten or twenty million who do not have health insurance are happy about that. It was a choice they made. Most are young and healthy and rarely need health care. Many get free care at emergency rooms, which needs to be fixed because it’s too expensive and not fair but it’s the only universal health care the politicians have already approved. But emergency room use reform is just that. It does not require that the entire industry be turned upside down.

2. Government involvement has caused most of the current problems

If there was a free market in health insurance, there would be many cheap, major medical policies that cover big expenses you cannot afford out of pocket. That is the kind of insurance everyone should have. Getting insurance to pay for every little thing that is health related is nutty. It would be like car insurance covering gasoline purchases, oil changes, and spilling a coffee on the console.

Government involvement forces insurers to get approved in each of the 50 states and to comply with 50 states worth of laws and regulations. That’s dumb. We need national licensing and fewer rules on how insurers structure policies. The main role of regulators is to make sure the companies are financially strong enough to pay their claims.

In every state, legislators have pet diseases or problems they want covered so they can play hero. So in various states insurers have to cover things like drug rehab, marriage counseling, preventive medicine, and so on. If left alone, insurers will probably offer such things, but not in every policy. Rather, they will offer stripped down and therefore cheap policies for those who want them.

Every time a state legislator plays hero by forcing insurers to expand coverage they are forcing the young and the poor to buy Cadillac coverage that they do not want or need. They are forcing the healthy to pay for the unhealthy. All that forcing insurers to only sell Cadillac policies is a big part of what is driving up health care costs.

For example, I am not interested in paying for a policy that covers drug or alcohol rehab. I have never taken a drink of alcohol or used illegal drugs. I don’t even want to pay for fat people, smokers, sedentary people, or any of that. By buying a policy that gives discounts for not doing any of that stuff, I can save money and I have incentive to continue to live a healthy lifestyle.

3. Medicare is not a success. It’s bankrupt.

Democrats and their supporters repeatedly point to the popularity of Medicare as proof that government health care is great. A recent study said that Medicare refuses to pay more medical bills than any other health insurer.

Medicare is popular because it is free taxpayers’ money. It’s free medical care. If that’s the winning formula, why not free food, cars, houses, and so on?

You say you like Medicare? Great. Enjoy it while it lasts. It goes bust in the next ten years. If you want to expand Medicare to pay for everyone, not just those over 65, it will go bankrupt sooner—like next year.

The same thing applies to to popular VA and Medicaid programs. They all offer free medical care at taxpayers’ expense. The taxpayers, having graduated from lousy unionized public high schools are too ignorant of arithmetic, civics, and economics to recognize that they are headed off a cliff. Many also graduated from colleges where the professors were Communists and socialists who often propagandized them instead of educating them.

4. Democrats are not in favor of anything but total government health care for all U.S. citizens nationwide

To the extent that the current plan differs from that, it is nothing but a bait-and-switch play. Obama now denies it, but he is on record as saying he favors a “single payer” system (the single payer is the government). See the video of Obama saying he favors single payer and that it may take ten or fifteen years to incrementally sneak it past the public.

5. When government controls health care, it will be unionized and therefore cost far more than now

Government employees are now more unionized than private enterprise. Union workers cost far more in terms of pay and benefits. Vallejo, CA has 117,000 people. But they are bankrupt because their union police and firemen cost too much. The mayor says they have three police forces and three sets of firemen. One of each is on active duty. The other two of each are retired. In other words, their union retired police and firefighters cost the Vallejo taxpayers twice an much as the guys who are working.

Now the Democrats and the SEIU are going to apply that business model to the health care of the entire nation.

6. Government-run operations always cost far more and provide far less quality than private counterparts.

When I was in the Army, we could never get our trucks fixed—during a war—in Vietnam. The spare parts we needed never arrived. Our mechanics were often warm bodies with no training. Their tools were lost, broken, or stolen by the mechanics themselves. The mechanics were poorly motivated. Bottom line, I never saw a truck get repaired when I was in the Army. We kept a few running by cannibalizing parts from the others. In the 82nd Airborne Division, they would deliberately not attach the trucks properly to the parachutes so they would be destroyed when they parachuted them. Why? It was easier to get a replacement truck than a replacement part for a decent truck. We got no trucks repaired EVER, in spite of having our own garage, automotive shop, motor pool, tools, and mechanics with in each battalion (about 400 guys).

Contrast that with my late mother. When she was in her seventies, and her car malfunctioned, she took it to her local regular mechanic. He would check it, diagnose the problem, call her, and tell her the cost. When she approved the cost, he ordered the part. A guy wearing a NAPA hat would show up in an hour or so with the needed part. The car would typically be fixed by closing time at the garage that same day. Cost? About $180 or so typically. On rare occasions, she would have to leave it overnight.

The U.S. post office is supposed to break even. It almost never has and is now looking at layoffs, shorter hours, fewer deliveries per week, and so on. In contrast, FedEx and UPS are thriving.

Ditto Amtrak.

It has been said that one of the biggest lies is, “I’m from the government and I’m here to help you.” Obama’s promise that the Democrat health care program will not add one penny to the deficit is probably the biggest lie ever told by a U.S. government official and they have told a lot of whoppers over the years.

7. Reform the parts that are broken

There is not a general problem with health care in America. Rather, there are several problems here and there like:

• malpractice lawsuits
• overregulation of health insurers
• disconnecting the cost of health care from the patient: when patients don’t pay out of their own pocket, they act like the money to pay grows on trees.
• recognize that other countries like Canada and Europe can only have government health care when the U.S. has private. When all developed countries have government health, there will be no new drugs and nowhere to go to get the health care you want, not the health care and waiting lists the government will impose. Indeed, without new drugs and competition from the U.S., government health care everywhere will go to hell in a handbasket because there will no longer be any private system to compare to or to attract patients away from government systems.

8. The health care bill is going to pass

The Democrats are going to get what they want because the American taxpayers gave them huge majorities in Congress and control of the White House. Not long after it passes, the nation will go bankrupt as have various state universal health care attempts. Then the problem will not be health care, it will be finding a job and, if you get sick, transporting yourself to Mexico or some Asian or Eastern European country where you can simply pay for health care the way you buy a car or the services of a lawyer from a private hospital or doctor.

Death panels

Everyone dies

You will eventually die. Health care and life-style improvements can prolong life in most cases. That’s all.

Many people will suffer an injury or illness for which expensive medical therapies (e.g., medicine, surgery) may prolong life and/or improve the quality of the patient’s life.

If you can afford the therapy in question, perhaps through your insurance, the decision on whether to have the therapy done is yours alone.

If you cannot afford the therapy by yourself, either you must forego it or find someone else to pay for it. If you have to find someone else to pay for it, one or more persons who have that money will decide whether to pay for it.

If there is more than one decision maker, and the therapy in question relates to prolonging your life, the group of decision makers is fairly called a “death panel.”

In other situations, it could be called a “pain panel” or a “quality of life panel.”

Your family

The person or group of people who decide whether you get the therapy in question when you cannot afford it by yourself may be your family. How that works out is between you and them.

Charity

The only alternative outside your family is charity including government charity. So if you and and/or your family cannot afford the therapy in question, you must go hat in hand to a charity or the government to ask them to please pay for your therapy.

Entitlement?

Politicians, especially Democrats, have encouraged voters to believe health care is an entitlement. That is a childlike fairy tale. Health care is expensive. It is only an entitlement if you purchase insurance from a reputable adequately financially strong company that agrees in the policy terms to pay for the therapy in question and you pay the premiums necessary for that company to afford the therapy for you and other members of the insured group of people.

If the government simply decrees that you are entitled to a health care blank check, and you support such a government, you are accomplishing nothing but sending your country down the road to bankruptcy.

There is no free lunch. Someone has to pay for your health care. Simply voting for politicians who promise to make someone other than you pay for it is childish. I saw a quote in the media that total confiscation of 100% of the profits of all the corporations in America would not be enough to pay for even one year of universal health care. Furthermore, anything remotely resembling that would cause all of those corporations to go out of business for lack of incentive to continue.

In other words, you’re going to die. How soon depends on your luck and/or how well you take care of yourself. Many Americans will die sooner or suffer poorer quality of life because of lack of enough money to pay for every therapy for everybody that might prolong life, mitigate pain, or improve quality of life.

The only choice we have is whether the decision will be made by you, a family “panel,” and insurance-company panel, or a government panel. Clearly, you are better off if the decision is made by you or your family. Beyond that, a private insurance company is better than a government panel because government is political and politicians make decisions based on politics. Government death panels will favor politicians, important supporters, and key voting blocs. Under Obama, expect government death panels to be contain mainly ACORN members, union members, trial lawyers, government employees, academics, Democrat party officials, and so on. They will place teir own political power before your interests. They always have throughout the history of mankind.

The correct health care policy is for citizens who want it to buy major medical insurance (possibly in the form of Blue Cross or HMO membership) to cover the most expensive procedures. All government health care programs should be ended including Medicare, Medicaid, VA, Congress, and so on. Why? The government does not have enough money to pay for Medicare and Medicaid. They have enough money to pay for the VA and Congress, but those are unfair to the taxpayers. The VA should only pay for line-of-duty veteran injuries or illnesses, not all veteran medical care. The government is even more inefficient—far more inefficient—than insurance companies and private hospitals.

People should pay for procedures other than major ones out of their own pocket. That is how we handle other necessities like food, clothing, cars, pets, farm animals, and shelter. It will result in the lowest costs because when people pay out of their own pocket, they shop around for the best prices thereby triggering downward competitive pressures on prices. The current high cost problem stems from costs being paid by people other than the patients. The system I am advocating is approximately the way Americans got health care in the 1950s, early 1960s, and before. It was not the intolerable disaster advocates of Obama care claim. I was there. So were you or your ancestors unless you emigrated here since then.

Career U.S. military behave like radical leftists

‘Family values,’ yes; results, no

The U.S. military is very conservative with regard to religion, “family values,” patriotism, the defense budget, veterans benefits, and all that. But when it comes to how they live their lives and do their jobs, they are radical leftist liberals.

How so?

They work for the government.

They live in government housing the size of which is determined by their rank and family size. They and their dependents get 100% bottomless pit, no co-pay medical care from cradle to grave. In many assignments, they also get all their food free.

They get paid a lot for doing nothing when they retire which they can do as soon as 20 years—sooner if they have a service-connected disability. The U.S. military’s payroll for its retirees surpassed its payroll for active duty personnel decades ago. In my area, Vallejo, CA went bankrupt recently. Municipal bankruptcies are almost unheard of in the U.S. When asked why, the mayor said,

We have three police forces: one on duty and two retired.

How many Armies, Navies, Air Forces, and Marine Corps are the U.S. taxpayers now paying for?

Defend freedom? yes; Exercise it? no

They have no freedom of speech and they’re fine with that. Although they are quick to tell you they will die to protect freedom of speech. I guess they will, but I wish they would exercise that freedom more.

But here’s the biggest problem.

Good intentions = results

Career military people think good intentions are a complete substitute for results.

Liberals enact all sorts of do-gooder programs like the War on Poverty, The Great Society, Medicare, Department Education, and so on. Invariably, those programs spend enormous amounts and accomplish very little. Poverty marches on undented by the War on Poverty. We have a Not So Great Society in spite of hundreds of billions being spent to create the Great one. If we just gave the poor the per capita amount spent “helping” them, they would all be millionaires, yadda yadda.

Look! Progress!

When criticized, the liberals point to their good intentions and occasionally—progress.

Just like the U.S. military. We lost the Vietnam war and got 58,000 killed in the process. Who was punished? No one. What was changed? Nothing. To this day, the U.S. military says they had good intentions in Vietnam and they did a great job and it was somebody else’s fault we lost.

No excuse

The first words spoken to me when I entered West Point were,

Mister, From now on you have three answers: “Yes, Sir.” “No, Sir.” and “No excuse, Sir.”

That was a great lesson, but, in fact, the U.S. military has millions of excuses. Just ask them why they lost in Vietnam or Somalia or Lebanon.

Iraq is now seen as a victory. We’ll see. Afghanistan seems to be getting worse in spite of more U.S. troops there than ever before.

I am not sure the U.S. military has the resources and rules of engagement to let them win in Afghanistan, but if that’s the case, they need to tell their civilian superiors that and get out. They do not.

They endlessly point to their good intentions and occasional progress (not necessarily net progress, just bits and pieces of apparent good news). Remember the daily “Five O’Clock Follies” briefings about “the light at the end of the tunnel” for ten years in Vietnam?

No substitute for victory

In his farewell address to the Corps of Cadets at West Point, General of the Armies Douglas MacArthur said,

There is no substitute for victory.

I agree. But the radical leftists who make up the career U.S. military personnel are quite willing to substitute their War-on-Poverty-like good intentions for results for as many decades as the U.S. public will let them get away with it. There is no end in sight to the proclamations of good intentions, lack of hard results, and happy-face briefings on “progress.”

Career military figure all they have to do is look the part and talk a good game and they’ll be praised as heroes. Intentions are enough. No results required.

For the last 40 years, they have gotten away with that completely and there appears no prospect that the American people or Congress are going to hold them to account for lack of results any time soon. We have become a nation of draft dodgers and draft dodgers are afraid to criticize military personnel. The longer the U.S. military are immune from criticism and not held accountable for lack of results, the worse the condition of the national defense will become.

I expect to think of additional examples that show that career U.S. military personnel are as radical as the most die-hard leftists when it comes to the elevation of good intentions over results and other behavior patterns. I hope readers will also remind me of others they recall seeing when they were in the military. I will add them to this aricle. See also my article Process orientation versus results orientation.

FYI: I am a registered Libertarian and voted for their candidate Bob Barr in 2008. I have never been a Republican or Democrat or conservative or liberal. I believe most people are actually Libertarians but they either do not realize it or do not admit to it because they fear it will result in their being ostracized from polite society.

The financial numbers that show the U.S. going off a cliff

The U.S. national debt is $11.9 trillion.

The U.S. Gross Domestic Product was $14.3 trillion in 2008.

Total U.S. tax revenue was $2 trillion for 2008.

Projected additional deficits for the next ten years are $11.7 trillion.

The President of the Dallas Federal Reserve Bank, Richard Fisher, said, “We at the Dallas Fed believe the total [current unfunded liabilities of the U.S. government] is over $99 trillion.”

Unfunded liabilities are debt the U.S. government owes or will owe for federal employee pensions and benefits, social security, Medicare, and Medicaid. Corporations are required to state them on their balance sheets. The federal government is not.

The sum total amount is: current national debt of $11.5 trillion + projected additional deficits over next ten years of $11.7 trillion + unfunded liabilities of $99 trillion = $122.2 trillion.

Total world financial assets are $178 trillion. Since the U.S. government is almost certainly underetimating our national debt and unfunded liabilities, the amount we owe is probably closer to $178 trillion. In other words, it is literally true that all the money in the world is not enough to pay our national debt and social security, Medicare, and so on.

The total market capitalization of all U.S. stocks is $15 trillion; all the stocks in the world, about $40 trillion.

The total value of all the assets in the world is about one quadrillion dollars; in the U.S., about $110 trillion. That’s all assets, not just financial assets, that is, your car, jewelry, furniture, real estate, gof clubs, and so on. In other words, if we sold the entire U.S. and everything in it to someone, it would not be enough to pay off our national debt and all the social security, Medicare, and so on that we have pledged to pay.

If we were to pay that debt off over the next 30 years at 5% interest the annual payments will be $7.9 trillion. To get the tax money to pay that much per year, we would have to raise taxes by $7.9 trillion ÷ $2 trillion current annual tax revenue = 400%. For example, if you paid $50,000 in taxes last year, you would have to pay $200,000 a year for the next 30 years to cover the debt obligations of the U.S. government.

The American people cannot pay such taxes and would refuse if they could.

Total wealth of all U.S. residents and entities: $55 trillion

Net worth of the population of the U.S. according to Federal Reserve Consumer Balance Sheet figure quoted in a 2005 book: $40 trillion

The alternatives are:

A. default on some or all of those obligations
B. inflate the dollar which has the effect of lowering the real (after inflation), value of all debts, bonds, CDs, life insurance, annuities, and savings accounts
C. cut spending by $6 trillion a year which is impossible because the total annual outlays are only $3.9 trillion

Obviously, the government will do B, inflate the currency, because it is the only choice that holds out the hope that the politicians can deflect blame to someone else, namely, retail merchants. Inflating the currency wipes out the real (after inflation) values of dollar-denominated assets like those listed above in B.

The government will probably also “means test” Social Security and Medicare. That is, they will reduce, in many cases to zero, the Social Security and Medicare benefits that affluent people receive.

The over $1 trillion per year of planned deficit spending over the next ten years requires that someone lend the U.S. government that much each year. Thus far, U.S. citizens, pension funds, banks, and foreigners have been making those loans by buying U.S. Treasury bonds. As inflation heats up, they will stop buying those bonds and will try to sell them. That will force the U.S. government to offer higher and higher interest rates to entice someone to buy the bonds. Foreigners will also refuse to accept dollars for their exports and will run on all the banks where they hold dollar-denominated accounts to convert those dollars into gold or other hard assets or currencies.

This will be the equivalent of forcing the U.S. government into involuntary bankruptcy. There is no precedent for what that means. Normally national defaults are handled by the International Monetary Fund and World Bank. IMF offers highly leveraged loans to poorer countries. They are not big enough to bail out the U.S. The World Bank is similar. No international organization is big enough to bail out the U.S. Furthermore, the rest of the world is so tied to the U.S. financially, that they will need their own bailing out as a result of the U.S. bankruptcy.

Could economic growth cover the additional $6 trillion per year we need to pay these debts? The non-partisan and respected Congressional Budget Office already assumed some growth in their projections of deficits over the next ten years, so the answer is not. Economic growth from a recovery is already factored into these numbers.

What should you do? I wrote a book called How to Protect Your Life Savings from Hyperinflation and Depression where I make a variety of recommendations for individuals to save themselves as much as possible. Basic ideas are buying things you will need in the future now as much as possible, pay off recourse debt, favor hard assets rather than dollar-denominated ones, make sure you have sufficient liquid hard assets like precious metals to avoid forced sales of illiquid hard assets like stocks or real estate, hedges, and so on. The recommendations are fairly technical not some simple one-step formula like buy real estate. The research on past episodes of inflation and deflation are scary. But the ancient observation “This too shall pass” applies. The typical hyperinflation or deflation has lasted one to 12 years. But those who configured their assets and liabilities wisely before it hit came out well or reasonably well. Those who did not, suffered far longer than the national hyperinflation or deflation period itself.

I appreciate informed, well-thought-out constructive criticism and suggestions. If there are any errors or omissions in my facts or logic, please tell me about them. If you are correct, I will fix the item in question. If you wish, I will give you credit. Where appropriate, I will apologize for the error. To date, I have been surprised at how few such corrections I have had to make.

Obama’s 2/24/09 economic speech to Congress

After being told by many of his fellow Democrats to back off “the sky is falling” rhetoric, Obama inserted some football coach “we can do it” pep talk stuff into his speech.

Let me tell you about the “we” in that reference.

How ‘we’ got to be ‘we’

America is not the world’s greatest country because “we” are located between Mexico and Canada. It is not the world’s greatest country because there is something in the water here. Or that “we” Americans have some unique ingredient in our DNA.

“We” are the greatest country because of certain crucial ingredients in our constitution and social compact, namely, the rule of law, free enterprise, private property, and reliance of our citizens on themselves to make their lives better, not on our government.

But the Bush-Obama laws of the last five months have to a large extent made those crucial ingredients illegal!

Obama celebrates how great “we” are and what great things “we” have done while simultaneously outlawing the great things “we” did.

Financial capital of the world

For example, the U.S. has been the financial capital of the world for about a century. The “we” who did that were the bankers and Wall Street guys combined with the U.S. laws and regulations that gave those bankers and investment bankers the freedom and leeway to do what they did.

Democrats now point to the subprime crisis as evidence that the bankers and investment bankers are utter incompetents who know nothing and whose activities need to be outlawed. For example, they are now micromanaging compensation of highly paid employees, including those paid by commission based on their sales or profits, and they are outlawing off-site business meetings according to demagogic, scapegoat stereotypes. What is the effect of this? The head of Morgan-Stanley was interviewed by Charlie Rose. Rose asked about these restrictions on compensation. The Morgan-Stanley CEO said the companies not covered by the new federal regulations on compensation are being gleefully headhunted by U.S. companies not covered by the new regulations and by foreign companies like Deutschebank. These are traders and star executives that those companies have been trying to recruit to work for them for years, with only partial success. Now, they are thrilled that the president of the U.S. has limited compensation. It will lead to an enormous brain drain of Wall Street talent to unregulated U.S. and foreign companies.

So while Obama is bragging about and almost taking credit for the great financial power that “we” created, and promising that since “we” created that financial center of the world, “we” can create it again, he is driving the “we” who actually did it and who know how to do it, away. He is also creating a structure of federal control and other laws that prevent a new generation of “we” from recreating the world’s greatest financial system. This started not too many years ago, in the wake of Enron etc. with the Sarbanes-Oxley new regulations which overnight made the U.S. IPO market number 2 to London after years of U.S. domination. The next great thing in Silicon Valley will have to go to London or Hong Kong or somewhere for financing because New York is now under the thumb of the Democrat politicians.

Obama and his Democrat allies say “we” can recreate our role as the world financial center, but he is simultaneously making it illegal for “we” to do just that. Yes, “we” can, but only if the Democrats change the laws back to permit it to happen. If it is illegal, as with Sarbanes-Oxley and the latest restrictions and nationalizations, it will not happen regardless of the fact that “we” are, as always, capable of doing it.

What about the fact that the bankers and investment bankers caused this problem? It’s true. They screwed up. Anyone who points that out should be congratulated for his grasp of the obvious. The bankers and investment bankers would, without the slightest action by the government, correct the mistakes. Their motive is to make as much profit as possible next year. They cannot do that by making lousy loans or by losing people’s money. They would adopt new internal controls to prevent the same mistakes from happening again. They would strengthen their balance sheets so they can again attract investors. This would happen fastest if there was absolutely no government intervention. The market would force them to do it and they would be rewarded to the extent that they get it right, fast. Some regulations relating to private businesses spending or risking need to be improved, but as always, the government needs to be careful not to overreach. Obama is not being careful to overreach. His picture is now next to the definition of overreaching in the dictionary.

Instead, we now have politicians and bureaucrats making business decisions. There is not a snowball’s chance in hell that management by the politicians and bureaucrats will do anything to the banks and investment banks but destroy them. Politicians and bureaucrats are the folks who run the Bureau of Indian Affairs, Katrina, and so forth.

London was the financial capital of the world a hundred years ago. If the British government does not overreact, London will again become the financial center of the world. “We” will be unable to regain our prior status in spite of our bigger market because our government will have made financial market excellence illegal.

Cars, too

The same thing applies to the car industry. Obama says we invented it, therefore we must save it. Actually, the Germans invented the car. Henry Ford just applied the assembly line (which he did not invent) to the manufacture of cars and applied a business principle other car manufacturers did not think of or rejected. That is, he assumed that low prices would increase the number of cars sold and that increasing the number of cars sold would let him lower the price still further, and so on.

The fact that we had the first successful manufacturer and marketer of huge numbers of cars has nothing whatsoever to do with whether the federal government should endlessly pump taxpayers’ money into the Big Three. We actually did invent the TV, but it has been a long time since a U.S. company manufactured one. No one cares.

The problem with the Big Three is their overly generous-to-the-union contracts. The solution is to renegotiate them either outside of or inside of bankruptcy. Taxpayer money should have nothing to do with it. The foreign car companies who manufacture cars in the U.S. are not in so much trouble because their plants are in the South and non-union.

Bankrupting the country

Then there is the issue of Bush and Obama bankrupting the country. When “we” made the U.S. the greatest country in the world, we did not have the ridiculous debt levels—either in dollars or percentage of Gross Domestic Product or whatever metric you want to use. Whether “we” can become great again while carrying this mind boggling debt weight on “we’s” back is very questionable. “We” did it before. And “we” can do it again. But “we” never did it with an $11 trillion dollar debt before. That debt that is now 79% of our gross domestic product and climbing by hundreds of billions or trillions a week as Obama passes one new monster program after another. Our national debt has not been that high since World War II/Korean War. During the Great Depression, the national debt was only about 20% of the gross national product.

It is fairly easy to come up with multiple scenarios in which that debt prevents us from regaining the greatness that “we” created in the past.

Obama is fond of saying we have to spend, spend, spend because we are facing the worst financial crisis since the Great Depression. Actually, at present, the financial crisis is more like the 1981 recession than the Great Depression. One could make a more compelling argument that we have to cut, cut, cut spending because we have the biggest debt since the World War II/Korean War period.

Wall Street has crashed and crashed again and crashed again as Bush and Obama have stumbled ineptly from one “try this” to another. Obama’s spokesman says he pays no attention to the stock market.

Say what? I believe the stock market is where the vast majority of Americans invested their life savings, their retirement money. The only reason Obama pays no attention to the stock market is because it keeps panning his “solutions.” The fact is until Obama causes the stock market to stop falling, everything else he does is just throwing gasoline on a fire.

The locomotive of the American economy is its entrepreneurs. Obama pays lip service to them, but all his policies hurt them. Monstrous borrowing by the federal government crowds out the entrepreneurs seeking financing or drives up the interest rates they have to pay. Raising taxes on the top 2% reduce the incentives that motivate entrepreneurs. Crack downs on Wall Street make it hard or impossible to do the initial public offerings that are the keystone event in the history of companies like Microsoft, Google, and Apple. Democrats would unionize their factories and burden them with greater health care costs. In fact, Obama really thinks jobs come from government and he will kill the private sector by draining more and more tax revenue from them and by regulating them out of profitability.

Yes, “we” can, but only if the government does not outlaw it. Government is outlawing and discouraging and elbowing aside entrepreneurial activities. Top talent in the U.S. will brain drain to the Middle East or London or Hong Kong or Singapore or wherever if the opportunities are better there. Obama seems to have no understanding of that.

We have been hearing for years that social security will bankrupt the country. And it will. The Baby Boomers start drawing their social security retirement benefits in five years in 2014. There is no money in the bank to pay them.

Medicare is worse Alan Greenspan was asked what will bankrupt the country first. He answered “Medicare” and gave the same answer years later when asked again. Medicare is a medical program for the elderly. The Baby Boomers hit 65 in three years.

Medicaid is another program we have been told will bankrupt us. And it will. It is also a program that will be hit by a Tsunami of Baby Boomers is a couple of years.

Several “progressive” states have tried to enact universal health care. All were forced to back off of it within months. It costs too much. Yet Obama is going to enact it right now.

He is also going to pay to send everyone in America to college or vocational school after high school. And spend hundreds of billions on solar and wind, which has already had tens of billions spent on it and it still hasn’t made economic sense. And he is still encouraging a trade war that will all by itself throw the world into a Depression. And he’s going to give 98% of the population a tax cut.

And who’s going to pay for all this? Not our grandchildren. gee, I’m glad to hear that. No, the top 2% who make more than $250,000 a year are going to get their taxes increased and all of the above will be paid for by them and only them.

Well, that would be me and my wife among others. Memo to Mr. Obama: We cannot afford to pay for all that even if we were stupid enough to do so. Richest man in the world Bill Gates’ entire net worth would not pay for even 10% of the “stimulus” bill. We are not stupid enough to do so. If you raise our taxes, we will look for ways to reduce them. I am the author of the book Aggressive Tax Avoidance for Real Estate Investors, now in its 19th edition. If I cannot find such legal ways, I will probably decide that making more than $250,000 a year is not worth the effort and let my income drop down to $249,999. It won’t affect our lives much. I expect most others will do the same.

Others will decide that cheating on their taxes is too valuable to not risk it. The higher tax rates go, the more people cheat. People can also move to other countries with lower tax rates, if they renounce their citizenship. Obama’s turning the U.S. into a socialist country will no doubt cause many to do just that, especially those with high earnings.

In short, Obama’s speech was incoherent. There is not enough money in the world to pay for all the stuff he promised. We cannot even afford the stuff we enacted into law before last year. And his additional promises that we will not leave a big debt for our grandchildren or raise taxes are even more at odds with reality. Yet every time he made another insane promise, the audience stood up and applauded again.

America has lost its mind. Reality, national bankruptcy or hyperinflation is what we will get. How many years from now? I will look for media stories by experts who run those numbers. It can’t be much longer.

I appreciate informed, well-thought-out constructive criticism and suggestions. If there are any errors or omissions in my facts or logic, please tell me about them. If you are correct, I will fix the item in question. If you wish, I will give you credit. Where appropriate, I will apologize for the error. To date, I have been surprised at how few such corrections I have had to make.

My solution for Detroit

GM, Ford, and Chrysler want taxpayer-funded bailouts. In the interest of full disclosure, the CEO of GM is my Harvard MBA classmate Rick Wagoner, but I never knew him. Here is my solution:

Plan A:

Both labor and management take an immediate identical pay cut of 10% or 15% or whatever it takes to turn a profit.

If Plan A is unacceptable to GM employees,

Plan B:

GM, Ford, and Chrysler go to DC and ask for taxpayer-funded bailout. President answers,

If you want taxpayers’ money, sell them a damned car.

If GM, Ford, and Chrysler are unable to do that.

Plan C:

If you refuse to cut your pay and you cannot sell the taxpayers enough cars, drop dead. That is, declare bankruptcy, get rid of your onerous union contracts and pension liabilities then emerge like the airlines did. If you won’t do that either, we’ll all drive made-in-the-U.S.A. foreign brand cars. Most of us already do. With GM, Ford, and Chrysler out of the picture, sales and employment at those other Big Three—Toyota, Volkswagen, and Honda—will increase and make up for the demise of the UAW companies.

Auto workers who want to stay in the car business should move to the right-to-work states. Oh, and with regard to your UAW union card, leave home without it.

Federal government telling Detroit how to make cars

The Democrats and Bill O’Reilly say that if the federal government bails out the three U.S. car companies, the government should force them to make more fuel efficient, greener cars. That is insane.

Memo to the I-hate-business Democrats and O’Reilly: business is extremely competitive. To succeed, you have to do many things just right, not the least of which is to offer the products that the customers want. If customers wanted fuel-efficient cars or green cars, GM, Ford, and Chrysler would have already been making them. The Democrats and O’Reilly think the customers should want such cars. Few things are more irrelevant to running a car company that the ignorant, half-baked theories of people whose business experience does not rise to the level of running a kids lemonade stand.

If Detroit is offered such a deal, they should say,

We’d rather go bankrupt now on normal business terms than get locked into a long-term contract with the federal government that forces us to make unprofitable cars which would, in turn, force us into a more devastating bankruptcy later.